Working Paper: NBER ID: w19889
Authors: Hendrik Juerges; Lars Thiel; Tabea Bucher-Koenen; Johannes Rausch; Morten Schuth; Axel Boersch-Supan
Abstract: About 20% of German workers retire on disability pensions. Disability pensions provide fairly generous benefits for those who are not already age-eligible for an old-age pension and who are deemed unable to work for health reasons. In this paper, we use two sets of individual survey data to study the role of health and financial incentives in early retirement decisions in Germany, in particular disability benefit uptake. We show that financial incentives to retire do affect sick individuals at least as much as healthy individuals. Based on 25 years of individual survey data and empirical models of retirement behavior, we then simulate changes in the generosity of disability pensions to understand how these changes would affect retirement behavior. Our results show that making the disability benefit award process more stringent without closing other early retirement routes would not greatly increase labor force participation in old age.
Keywords: health; financial incentives; early retirement; disability pensions; Germany
JEL Codes: H55; J14; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial incentives to retire (J26) | Retirement behavior of sick individuals (J26) |
| Financial incentives to retire (J26) | Retirement behavior of healthy individuals (J26) |
| Option value of postponing retirement (J26) | Retirement hazards (J26) |
| Health status interacts with financial incentives (G52) | Retirement behavior (J26) |
| Health status (I14) | Retirement hazard rates (J26) |
| Severe health shocks (I12) | Retirement probabilities (J26) |